If Expectation Theory Holds Then

question 2

Multiple Choice

If expectation theory holds then:

• A) a flat yield curve is an indication that long-run rates are expected to increase.
• B) investors must be offered a higher expected return to hold a bond longer
• C) the yield curve cannot be downward sloping
• D) then an upward sloping yield curve is an indication that short-term rates are expected to increase.

---

Definitions:

Total Utility

The overall satisfaction or value a consumer receives from consuming a particular quantity of a good or service.

Marginal Utility

The extra pleasure or benefit obtained from consuming an extra unit of a product or service.

Total Utility

The complete gratification gained from the use of a certain quantity of goods or services.

Marginal Utility

The extra pleasure or benefit gained by a consumer from consuming an additional unit of a product or service.